Old Man Winter Puts Consumer Spending in Deep-Freeze

As a winter storm stretches across two-thirds of the US, it is worth reflecting just how bad Old Man Winter has been treating us and what impact this will have not only on retailers, but also on the economy.

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Shoppers on Broadway in the snow

There have been some eye-popping weather statistics:

New York City had its snowiest January on record, according to Planalytics, a firm that provides weather data for businesses. Some 36 inches fell there. Other parts of the Northeast also experienced well above normal snowfall last month.

In the Southeast, Atlanta and other cities in the South experienced ice and snowfall bringing traffic and commerce to a halt for several days.

All in all, it was the snowiest January in six years, and coldest in four years. During the second week of the month, Florida was the only state without snow on the ground.

"Snow, ice and severe weather made many consumers weather-weary by the end of the month," said Scott Bernhardt, chief operating officer of Planalytics.

Planalytics expects to find that the demand for weather-related items surged. For example, demand for ice melt may have been about 78 percent higher than last year, cold and flu medicine were up 5 percent, and heated blanket demand could have been up 15 percent.

But many retailers are likely to report disappointing retail sales for the month, as shoppers were kept out of the stores by the harsh conditions. And when they slogged off to the mall, they probably spent their money on marked-down clearance items such as winter coats and sweaters, instead of picking up the full-price Spring apparel.

On Tuesday, the International Council of Shopping Centers cut its forecasted January same-store sales gain to a range of 1.5 percent to 2.0 percent. Last week, it said it expected an increase of about 2.0 percent.

Still, keep in mind that January accounts for the least amount of sales in the fiscal fourth-quarter, and many analysts expect a poor month is unlikely to hurt earnings forecasts.

Needham retail analyst Christine Chen estimates January accounts for about 15 percent to 20 percent of the sales in the quarter. That said, Chen now expects the likelihood of retailers outpacing the current earnings estimates is now unlikely.

Also, it's worth keeping in mind that retailers with big operations in the West Coast may have actually benefited from weather patterns there, as it was largely dry in cities such Los Angeles and San Francisco.

"Ironically, this kind of weather is positive for online sales and with the growing strength of this channel, may have offset at least some of the weather-related traffic problems," said Paul Walsh, a senior vice president at Verisk Analytics' Atmospheric and Environmental Research.

Many retailers sent email blasts to try and stir up traffic to their online sites. Wall Street Strategies analyst Brian Sozzi said some of these promotions were telling.

Sozzi said some retailers—the Gap , for example—went "promotional email crazy, offering 25 percent to 40 percent off on many days throughout the month."

What's more, some of these promotions included spring merchandise that had just arrived in stores. Sozzi says this either reflects the unwillingness of consumers to buy discretionary purchases when there isn't a pressing need (such as the need to buy a holiday gift), or it is a sign that the store has the wrong merchandise.

Sozzi is recommending investors short Gap and American Eagle Outfitters as both stores appeared to have the wrong product mix.

BMO Capital Markets retail industry analyst John D. Morris also expects disappointing results from Gap, as well as with Aeropostale . He expects Abercrombie & Fitch may prove to have bucked the trends as they had a greater portion of winter clearance items relative to others.

"Looking forward—despite what the groundhog may say on Wednesday—weather conditions look to be relatively unfavorable for retail as colder and wetter conditions to last year continue to predominate through early spring," Walsh said.